HHS has released final regulations that reissue, with additional explanation, the risk adjustment methodology previously established under the risk adjustment program for 2018. As background, the risk adjustment program, established by the Affordable Care Act (ACA), applies to non-grandfathered plans and insurers in the individual and small group markets, and is intended to stabilize premiums and reduce incentives for insurers to avoid higher-risk enrollees. Under the program, plans with lower-than-average actuarial risk are assessed charges that are used to make payments to plans with higher-than-average actuarial risk. A New Mexico district court barred the agency from using the methodology in the risk adjustment transfer formula for 2014–2018 on the grounds that HHS did not adequately explain its decision to adopt a methodology designed to ensure that amounts collected from insurers equal payments made to insurers (budget neutrality). In July, HHS reissued final regulations to explain the rationale for the use of statewide average premiums under the risk adjustment program for 2017—thereby restoring operation of the program after a short pause in risk adjustment collections and payments based on the court ruling (see our Checkpoint article). These newly reissued regulations allow risk adjustment collections and payments for 2018, with additional explanation in support of budget neutrality and the use of statewide average premiums—including responses to comments by stakeholders—set forth in the preamble.

EBIA Comment: On HHS’s request to amend or alter, the district court for New Mexico recently issued a follow-up opinion in which it stood by its decision to vacate the use of statewide average premiums in the risk adjustment methodology for the 2014 through 2018 benefit years. Although the litigation is still pending, HHS has reissued these regulations to preserve the ongoing operation of the program for the 2018 benefit year. For more information, see EBIA’s Health Care Reform manual at Sections XX.E (“Mechanisms to Allocate Risk: Risk Adjustments”) and XXI (“Exchanges, Qualified Health Plans (QHPs), and CO-OPs”).